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More Cost Cuts Sought From Drug Industry

The pharmaceutical industry has remained relatively unscathed so far in Washington’s effort to overhaul the nation’s health care system. But it is too soon for drug makers to declare victory — especially now that the cost of health care has become a central issue in the debate.

Despite the much publicized 10-year, $80 billion cost-saving promise the drug industry made to President Obama and the chairman of the Senate Finance Committee last month, some House leaders do not think the drug makers have given enough.

And Mr. Obama seemed to agree Wednesday night in a nationally televised news conference focused on health care reform. He praised the pharmaceutical industry for making a hard commitment, but added, “We might be able to get $100 billion out of them, or more.” Mr. Obama offered no specific plans to increase the companies’ contributions to health care savings.

Chief among the Congressional critics of the drug industry is Henry A. Waxman, chairman of the House Energy and Commerce Committee, which is playing a lead role on the health overhaul.

For starters, Mr. Waxman wants the drug industry to give up an additional $63 billion over the next decade. That would come by reversing a 2006 policy change that removed millions of low-income elderly from Medicaid drug coverage and had them pay higher prices for the same drugs under Medicare — a move he has called a “windfall for drug companies.”

Billy Tauzin, head of the drug industry’s main trade group, said that his members could not support that change. “What Waxman is trying to do, you not only break the deal, you break the bank for us,” said Mr. Tauzin, president of the Pharmaceutical Research and Manufacturers of America.

But Mr. Waxman said in an interview Wednesday night: “I know they have a deal with the Senate, and I think they do have a deal with the White House, but I don’t know how pinned down it all is. But they don’t have a deal with us — the House.”

Mr. Waxman is also looking for a much tougher bargain with drug makers on another pivotal piece of the cost puzzle — the effort to allow generic competition in so-called biologic drugs, which represent the most expensive and fastest growing part of the market. The drugs, many of them used against cancer, can cost tens of thousands of dollars a year.

As a trade-off for opening that market to generic competitors for the first time, the Senate health committee last week voted 16 to 7 to give the name-brand drug companies 12 years of exclusive marketing rights before a copycat biologic drug could go on the market. “That was a huge vote,” Mr. Tauzin said.

But Mr. Obama still wants to hold the line at seven years, his aides said Tuesday. And Mr. Waxman wants to offer the brand-name industry only five years of profit protection.

“There’s no justification for giving them monopoly pricing for their drugs for such a long period of time,” he said.

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Billy Tauzin of the Pharmaceutical Research and Manufacturers of America.Credit
Jamie Rector/Bloomberg News

It is not remarkable that a top Democrat like Mr. Waxman would be taking a hard line against drug makers. After all, the pharmaceuticals industry has long been a target of attack by the Democrats who now rule Washington.

What is more notable is that on many other issues in the health care debate, the drug industry seems to have staved off some of the measures it most feared. None of the legislative packages now favored by the Democratic leadership, for example, include long-simmering proposals to let Americans buy cheaper drugs from Canada. Nor is there a push to end the tax breaks for drug advertising that some critics say promote the unnecessary use of costly pills.

And seemingly off the table is any talk of giving the federal government new powers to negotiate drug prices with the pharmaceutical industry.

“PhRMA’s biggest worry is price negotiation,” said Steven Findlay, a health policy analyst at Consumers Union, using the nickname for the drug industry group. “They would like to keep that totally off the table — this year and forever.”

John Rother, executive vice president of AARP, the lobby for older Americans and a longtime critic of the drug industry, described PhRMA as “one of the big winners so far in health care reform.”

“It’s only surprising in the context of calls that everyone should give something and that we need to slow down the rate of health care costs,” Mr. Rother said. “So you don’t expect then to see an industry coming away with huge wins.”

Mr. Tauzin, PhRMA’s president, has led the group since shortly after he left Congress in 2005, where as a Louisiana Republican he was chairman of the same House committee now headed by Mr. Waxman.

Mr. Tauzin has helped PhRMA build a compelling public policy argument on behalf of prescription drugs: they account for only 10 percent of the nation’s health care spending. They help people avoid hospitalization and other more costly medical treatments and their profits pay for research and innovation that result in newer, better drugs.

Mr. Tauzin, who has been battling intestinal cancer for several years, credits drugs for his own survival.

“All we have to do is convince America we are trying to save lives,” he said, citing studies that each dollar spent on drugs saves $6 in other health costs.

It is an argument backed by an army of lobbyists and a huge political war chest.

Drug companies have invested nearly $1 billion in lobbying over the last decade, more than any other industry, according to the nonprofit Center for Responsive Politics, and more than $100 million in campaign donations, increasingly to Democrats. And the drug industry in the last three months has increased its spending, according to reports filed Tuesday: PhRMA spent $6.2 million during that period and 10 drug companies each spent more than $1 million.

A crucial moment for the industry came a month ago when Mr. Obama and Max Baucus, chairman of the Senate Finance Committee, announced that PhRMA had agreed to come up with $80 billion in drug savings for seniors and federal health programs over the next decade.

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Representative Henry A. Waxman.Credit
Fred Prouser/Reuters

About $36 billion of that would come from a 50 percent discount on name-brand drugs when people using the Medicare Part D drug program enter the so-called doughnut hole — a built-in gap in the federally subsidized coverage when enrollees must pay for their drugs out of their own pockets.

A Deutsche Bank stock analyst termed the 50 percent offer “a palatable form of concession” since it would also raise new revenue from people who would otherwise stop buying the drugs or switch to lower-price generics. A Barclays Capital analyst called the offer “less than what meets the eye.”

But it was the first industry group to make a savings pledge, and it came at a time Mr. Obama’s health care agenda needed a political kick-start.

On July 7, Rahm Emanuel, Mr. Obama’s chief of staff, and Mr. Baucus assured at least five pharmaceutical companies during a White House meeting that there would be no provision in the final health care package to allow the reimportation of cheaper drugs from Canada or elsewhere, according to Mr. Tauzin.

The industry’s message, Mr. Tauzin said, was, “Don’t put us in a big negative fight over this issue while we’re trying to help you pass something that would be good for the American public.”

The meeting included chief executives from Pfizer, Merck, Amgen, AstraZeneca and Abbott Laboratories.

“This time our industry has a seat at the table and our voice is being heard,” Richard T. Clark, Merck’s chief, said in a conference call Tuesday with stock analysts.

Reid H. Cherlin, a White House spokesman, said Tuesday that the administration was happy with the “unprecedented commitment” from “an industry that has opposed health reform efforts in the past.”

The rest of the $80 billion cost-savings package tentatively includes more than $15 billion in higher rebates for Medicaid drugs, much of which Mr. Obama was already seeking in his budget. The pledge also projects about $9 billion in federal savings from the advent of generic competition in biologic drugs, and additional billions from imposing some sort of new fee on the industry.

The details are expected to emerge from Mr. Baucus’s bill, which is still under cloak as he negotiates concessions from other industries.

“We’ll do it in a way they want,” Mr. Tauzin said.

Meanwhile, Mr. Tauzin met last weekend with the Blue Dog Democrats, who control the swing votes on Mr. Waxman’s committee. He said the fiscally conservative group — which he helped found in 1994 before he switched parties — gave PhRMA a good reception.

Even if PhRMA feels secure in its understanding with the White House and Mr. Baucus, the industry knows it must still try to bring Mr. Waxman’s committee and the House around to its way of seeing things.

A version of this article appears in print on , on page B1 of the New York edition with the headline: More Cost Cuts Sought From Drug Industry. Order Reprints|Today's Paper|Subscribe